This project seeks to reduce the gap in the literature and gain in-depth insight into how underwriters respond to the use of loss prevention under premium determination as well as what quantitative effect can be observed in retrospect to estimating the future effect of using property loss-prevention technologies. The project will help insurance buyers determine the extent of loss prevention needed to gain a positive economic net-benefit when risk is transferred to an insurance company.
Technological advancement in methods for loss-prevention present novel ways for people to cope with the risk from typical scenarios such as fire, crime, natural catastrophes and technology risk such as the technical installations present within the building. However, technology advancements in helping manage risks have been occurring more rapidly than the existing market, and insurance systems have thus not been able to adapt to them fully. While various loss-prevention technologies, e.g., Fire alarm systems, sprinkler systems, burglar alarms, Access Control, CCTV, Water leaks detection systems etc., are commonly recognised in the industry, little is actually known about the economic net benefit for the property owner nor the quantitative effects on property damage.
In order to gain an unprecedented understanding of these economic net-benefits and quantitative effects, a collaboration between Willis Towers Watson, 14 clients, two insurance companies and the University of Southern Denmark was established in 2019. This collaboration has enabled this research to provide a deeper understanding of the market's response to loss-prevention technologies and the quantitative effect said technologies can have on property damage.
The Willis Research Network and the University of Southern Denmark will present the research in a series of three articles through 2021 and 2022. The first article will report on the challenges the insurance market has when pricing risk heterogeneity in the tail of the risk distribution, and thus how loss-preventions effect on insurance premium might vary depending on where in the distribution the effect is expected to influence carrier's risk. The article will be based on data from 40 danish municipalities' insurance purchases and includes information on building characteristics, use of loss-prevention, claims history, insurance bids etc. over the period from 2008 to 2019.
The second article will address how property damages can be influenced by the use of loss-prevention technologies when there is no risk transfer. Data on recorded losses, the use of loss-prevention and building characteristics will be collected for approximately 5000 buildings owned by danish municipalities from 2014 to 2018. The article will add to the quantitative understanding of how automatic fire alarm systems, sprinkler systems, burglar alarms, access control, CCTV, automatic water leak detection systems are influencing property risk.
In the third and last article the project will be operationalized, and a framework for a decision-making model will be presented. The model is expected to support policyholder's future investments in loss-prevention and guide in the determination of the need for property loss-prevention, risk transfer and acceptance of own-risk.
Read the main findings
You can read the main findings of the PhD by clicking on one of the catalogues: